One of San Luis Obispo County’s biggest wineries, EOS Estate Winery, has been placed in receivership because of financial problems.
At the request of one of the winery’s lenders, Farm Credit West, a court-ordered receiver has been put in charge of the books in hopes of keeping the Paso Robles winery from further harm, according to court filings. In the interim, the winery is continuing to operate.
A receiver is appointed by a court to manage a business while the court tries to resolve problems hampering that business.
“The winery has been placed in an extremely difficult situation due to extensive borrowing from the previous company,” said Kerry Vix, general manager and chief executive officer of Saint James EOS Winery, which bought the company from Sapphire Wines, a Tennessee-based firm owned and controlled by Jeffrey Hopmayer.
Hopmayer did not disclose the terms of the deal.
Hopmayer in turn blames Saint James EOS for being unable to obtain the funding necessary to keep the winery afloat.
“The economy fell apart and that created difficulties in their ability to get funding,” he said. Hopmayer said he can’t comment on ongoing litigation, but noted that “our books were fully audited by an outside third party before the transaction was complete, and it passed with flying colors.”
EOS Estate Winery, which produces about 216,000 cases a year of petite sirah, zinfandel, chardonnay, cabernet sauvignon and other varietals, was founded by the Arciero family in 1985, then sold to Sapphire Wines in 2007. Sapphire was formed by 46-year-old Hopmayer specifically to buy and operate wineries.
Hopmayer brokered the purchase of the 110,000-square-foot winery and hospitality center as well as 60 surrounding acres; another 600 acres of vineyards were kept by the Arcieros to own and manage. His purchase price was around $20 million, Hopmayer said.
In 2008, Forbes Magazine described Hopmayer as “prowling California’s wine country” to make more acquisitions, primarily from family-controlled wineries. Hopmayer told The Tribune this week that he also bought two other labels, Carneros Creek of Napa and Wildhurst of Lake County; Vix said that deal occurred in 2009.
Hopmayer then sold all three winery brands to Saint James, a publicly held company, in October 2009 — and the financial dispute began.
The ongoing dispute between Saint James EOS and Hopmayer made Farm Credit West so worried about its collateral that it filed for a receiver to take over, Vix said.
Since Hopmayer bought EOS, the company has steadily racked up debt. It owes an estimated $16.5 million to lenders, including a $7.5 million loan from Farm Credit West and $8 million owed to Entertainment Properties Trust. The winery also owes $2 million to $3 million to growers and $1.2 million in rent not paid since August 2009, according to court filings.
Farm Credit West’s lawsuit also said periodic site inspections have shown as much as $1 million missing from the winery’s books, either because the winery had not been paid or the money had been transferred improperly to Sapphire Advisors, which handles the bookkeeping for EOS. Sales did not go to pay the winery’s debts, Vix told The Tribune.
“Where did the money go? That’s what the receiver hopes to find out,” Vix said. “It isn’t with the winery, I can tell you that. Prior to Feb. 1 all the finances and administration were handled (with Sapphire Advisors) out of Tennessee.”
If the receiver had not been put in place, EOS Estates Winery’s current inventory of about 80,000 cases of wine could possibly have been exhausted in four months, several million dollars more could have been “diverted,” and the winery would have been forced out of business, the Farm Credit West lawsuit said.
On May 13, the appointed receiver, Mark Burrell of Bakersfield, and attorneys on behalf of both Farm Credit West and Hopmayer appeared before Judge Dodie A. Harmon in San Luis Obispo Superior Court. Jim Buttery and Dennis Law, who represent Farm Credit West, said Burrell found “the cash flow was not there” and the company was in a “critical situation we can’t ignore.”
Hopmayer’s attorney, Allen Ostergar of Mission Viejo, objected to any court decision about EOS, saying the parties were trying to recapitalize the company and had lined up a potential buyer that “would be in the best interest for all concerned.” Also, Burrell had found $11.3 million in inventory and receivables, ample assets to support the company at this time, Ostergar said. Any further action of the bank to shut down the business would “destroy the value,” he told the court.
Harmon agreed to give Ostergar time to negotiate with the promised potential buyer — who has gone unnamed. Calls into Ostergar for a progress report were not returned.
The next hearing date is set for May 27.